On January 21, 2014, Ketaki Gokhale of Bloomberg published a story in Businessweek on disputes over drug patents. The story closed with a rather sinister quote attributed to Bayer CEO Marijn Dekkers, “We did not develop this medicine for Indians. We developed it for Western patients who can afford it.” The comment in question was made by Dekkers at a December 3, 2013 event hosted by the Financial Times, titled “Buffering the Pharma Brand: Restoring Reputation, Rebuilding Trust.” The article and particularly Dekkers’ quote caught the attention of health advocates and went viral in the health policy community.

“So now, is this going to have a big effect on our business model? No, because we did not develop this product for the Indian market, let’s be honest. I mean, you know, we developed this product for Western patients who can afford this product, quite honestly.”

While there is a difference between Dekkers’ comment and how he was initially quoted in the Businessweek article, and Dekkers is somewhat more tactful in his dismissal of cancer patients in India than Businessweek had first reported, the differences in tone are minor, and the meaning remains intact.

KEI has prepared a more complete transcript of Dekkers’ comments on this issue at the FT event.

Immediately preceeding the quote in question, Dekkers discusses the Indian government’s decision to issue a compulsory license on the cancer drug Nexavar,

“In our case, the Indian government said “No, no, your patent is valid, and this is a product for kidney and liver cancer. Your patent is valid we just think you charge too much. And because you charge too much you have to do a mandatory license to a generic company in India that is now going to make this drug and sell it. And on that low price that they will sell it for, you will get 6% royalty.” And that was a government decision. So we had a patent but somebody else is allowed to make this product and because there is not enough access to this product for poor Indians. I don’t know if you’ve even been to India, there are a lot of poor Indians obviously, and the hospitals aren’t that close by [laughs] to where they live, so we found that this was extremely politically motivated and essentially, I would say, theft.”

It is odd that Dekkers justified the claim that the Nexavar compulsory license was politically motivated on his claim that for poor people in India “hospitals aren’t that close by,” since plenty of poor persons live near hospitals in India, and the drug is administered in tablets, typically 2 tablets taken twice a day on an outpatient basis.

The transcript of the FT event available below is transcribed in full from minute 11:26 to minute 21:17 (which includes the preceding comments/questions as well as those that immediately follow the relevant quote), with minute markers included in brackets for tracking and reference purposes.

There are also other sections of interest from the event included in the transcription, including, for example, Burns (former Chief Executive of Pharmaceuticals for Roche) comments on Africa in general:

“A typical government in Africa still spends 1% of its budget on healthcare of GDP and 10% on armaments. These are conscious choices, in a society as to what percentage you’re going to spend.”

And Dekkers on South Africa.

“But you know the risk in these situations is always spillover. If this generic Indian company is now going to sell this product, then South Africa, and then New Zealand, you never know, you know, how this is going to spillover. And that puts the whole industry and the patent right of an industry at risk.”

Snijdewind: …There’s a strategic rationale behind introducing and using corporate sustainability in your daily business. And we are firm believers that especially the pharmaceutical sector could be on the forefront of that because unlike any other sector they are, I would be inclined to say, are able to improve the lives of people and by doing so also hopefully make improvements for all stakeholders, including those shareholders that I’m one of. What we use in our analyses and our view of companies and in our engagement with companies is indicators such as the access to medicine index which shows, which is essentially a ranking of the access to medicines policies of companies and also the implementation thereof, which show us the strategic rationale that companies seem to be having on this. And it varies greatly within the sector, you have companies that have really made it one of their key focus areas for the future while others only think that it encompasses philanthropy and nothing more. Of course philanthropy from an investor’s point of view is really the last road, that we’re, well we realize that it’s part of the whole package but from an investment point of view its not really, there’s not much business rationale behind that. But we do think that going forward, and I realize there’s a lot of companies doing a lot of work on this, they could be more transparent on this without turning it into a marketing story, too much. But I think there’s a lot of moves a company can make, and in terms of long term profitability, access to medicine and improving access to healthcare in general and creating capacity building on the ground in countries where it’s most needed. I think that’s, that’ll be a long term value driver.

Jack: So if you look at those different areas of reputation we’ve been touching on here, there’s transparency, on pricing, affordability, on marketing, and so on, is there one in particular that starts really, that’s front of mind that could potentially really affect investor’s attitudes to the prospects for returns for the industry?

Snijdewind: Well, for us to single out one indicator, we try to look at the entire, entire, approach of companies. What I find quite important personally, is the approach to pricing, differential pricing. Which is important because essentially you want to ensure that the, as was mentioned before, that people are actually able to afford that medication. It also, if you do it right, takes away the whole philanthropy approach because essentially you want people to pay and be able to pay for the medication that they need most.

[14:40]

Jack: You talk to investors obviously a lot, what’s your impression from the other side? Do you hear a lot of pull concerns you know a sense that a lot of these issues are driving investment or is it a bit of froth around the edges?

Dekker: I honestly believe investors, of course Rodger is an exception, they don’t care about these issues all that much. What they do care about a lot is whether the business model in pharma still makes sense. They are nervous when companies who don’t really have a track record of success in getting a return on their R&D expenses continue to invest billions in R&D. And it’s almost a bimodal distribution. There are a number of companies that have been successful and they’re encouraged to keep doing what they’re doing and there are some companies with relatively dry pipeline who need to be managed for cashflow and have almost a different set of rules applied to them by investors than the first group. And you, I can make the list of which companies fall into which category. And this is why I’m so worried about the pricing levels, because you know, we had a situation in Germany four years ago and there was a mandatory rebate of 16%. It was introduced by a politician who is now no longer active in the German politics but ok. 16%, that is basically, was at the time a 10% price cut for all prescription medication. Now in the new coalition agreement it will be turned around again so we’re getting now a 9% increase in pharmaceutical pricing. But pretty much the entire population of Germany was applauding, you know, “good job” “let’s go and save some money on those expensive pharmaceuticals.” And the politicians felt great about themselves, right, because those are the voters. I think the issue is that the voters who are also patients are forgetting then that the incentive to work on newer and better drugs pretty much is put at risk with such measures. And that, that connection is never explained.

Jack: Of course you had that example from Germany because also if we’re talking about access issues, you also had your experience in India not so long ago with one of your cancer drugs, where there was challenges to the patent. So flipping the question around, is there, do you think further transparency and further pressure on downwards pricing, some of these demands perceived to improve performance by the industry, would actually undermine your ability significantly to-

[17:45]

Dekkers: No, India for us was an unusual situation. Our patent was not questioned, I mean other companies patents are questioned. In our case, the Indian government said “No, no, your patent is valid, and this is a product for kidney and liver cancer. Your patent is valid we just think you charge too much. And because you charge too much you have to do a mandatory license to a generic company in India that is now going to make this drug and sell it. And on that low price that they will sell it for, you will get 6% royalty.” And that was a government decision. So we had a patent but somebody else is allowed to make this product and because there is not enough access to this product for poor Indians. I don’t know if you’ve even been to India, there are a lot of poor Indians obviously, and the hospitals aren’t that close by [laughs] to where they live, so we found that this was extremely politically motivated and essentially, I would say, theft. Of the Indian government, of a capability of a company that is patented, and therefore a patent right. [19:10] So now, is this going to have a big effect on our business model? No, because we did not develop this product for the Indian market, let’s be honest. I mean, you know, we developed this product for western patients who can afford this product, quite honestly. It is an expensive product, being an oncology product. But you know the risk in these situations is always spillover. If this generic Indian company is now going to sell this product, then South Africa, and then New Zealand, you never know, you know, how this is going to spillover. And that puts the whole industry and the patent right of an industry at risk.

Jack: You wanted to come in? Just to Rogier first, and then we’ll come to you. [directed at Dedes]

Snijdewind: Just to address that PGGM is the exception as far as investors go-I think there’s a great continental divide, if you look at US investors it’s not really on the top of their agenda, but I think that European investors, particularly Dutch and English investors. I believe its a bit different. I do think the key takeaway of today is that politicians are to blame for pretty much everything. Which is a popular viewpoint nowadays. I don’t necessarily disagree with that. But with regards to your remark about the business model I do think that indeed about the changing business model I think if the pharma sector would not be focused on, or would have to reshift their focus on the high margins on blockbuster drugs, then just do volumes, then I think thats a great case to be made for increasing access. Also in other countries because essentially that the only way that have to increase volume in the short run. Especially in the long run when prices can increase.

[21:17]

Dedes: Well Rogier’s got to it first, and what I would make as a plea to CEOs that are in the room is that to develop medicines not for markets, but for patients. Because as you said [indicating Dekkers], the pricing is such that Indian markets could not possibly afford it, but if it is with the business model that Rogier just mentioned, where you can have return on investment with volume, I mean we all know how the iTunes and the Mac/Apple applications are being marketed-as such low price-but of course they are selling millions, billions of those and this is where they get their return on investment…

…

[25:15]

Burns:…And what is it that then says well I’ve got to get a payback before the patent expires? Well I understand that from the innovation part and we need that to be intact, but there is a vibrant generics industry. And once a product goes off patent, then free market forces do take place. It does not mean that access goes up. A typical government in Africa still spends 1% of its budget on healthcare of GDP and 10% on armaments. These are conscious choices, in a society as to what percentage you’re going to spend. Or in a country like India, where the patent law is in early stages and there’s still a desire to protect the local generic companies until the patents become vibrant enough with local industry. It was rather interesting, it took until about 4 or 5 years ago before in China there was an inflection point that there were more patent cases between Chinese national companies whereas up until that point it had all been international companies against Chinese national companies. So as innovation kicks in, as research kicks in in all those countries, they start to appreciate it…[goes on to cite a 40 year-old off patent drug on WHO list that has saved a lot of live as example of people having access to the drug and that people don’t give the pharma industry enough credit for making these drugs]…It’s very easy to bash the industry on short term pricing than to look at, what is the long term contribution? and the access around the world?[29:09]

…

[32:30]
Dekkers: Yeah, before I joined Bayer I was not really in the pharmaceutical industry and, as I tried to say in my opening remarks, I was shocked by some of the practices, quite honestly. Off-label promotion and advertising being the two most significant examples of it. So, off-label promotion is illegal, so that’s easy, it should not be done. And I really do believe that the industry has really gotten its act together on that 100%. But what we often still read about is cases that are 10-20 years old that are being dealt wit still. The advertising is just something so unnecessary. And if I were a doctor and a patient, it would turn me off. As a doctor I would say why are they meddling with my relationship to the patient? And as a patient I would say why is the pharmaceutical industry pushing something on me that I should be prescribed by my doctor? So I don’t see how that can be a win situation for either the doctor or the patient…

…

[39:40]

Dekkers: …When its about access to medicines, and I do believe that this is not just a Bayer philosophy but a pharmaceutical company industry policy, pharmaceutical companies really do not want that poor people cannot use their drugs. We really don’t want that. We want people to have access to drugs. We want to make that more and more possible. It’s not always easy, but the pharmaceutical industry is clearly working on that. It cannot get to the point where when you pay, where when you have poor people pay very little for a drug basically that costs less than the rich Germans or the rich Brits or the rich Americans or the rich Japanese, are like “Hey, you sell it there for that price, why don’t you sell it to us at that price?” You can say that, you can force that upon pharmaceutical companies, my only point then is not a complaint, just know that then the pharmaceutical industry won’t be motivated to develop the next drug. Because, there has to be a return on your investment…